Lease – Termination – Dilapidations – Lessee entering into contract subject to assurance that no schedule of dilapidations to be served on cessation – Whether collateral contract arising from negotiations between parties creating new lease – Whether collateral contract precluding lessor from enforcing repairing covenant – Appeal allowed
In 2001, the respondent was the lessee and the appellant’s predecessor in title was the lessor under a business lease of the basement, ground and four upper floors of a building for the residue of a term of 25 years from 1980. Between October 2001 and January 2002, negotiations took place for the surrender of the old lease and the grant of a new lease for a term of five years.
The old lease was surrendered and a new lease was granted in January 2002. By clause 2(5), the respondent covenanted to keep the property in good and tenantable repair and condition and to deliver it up in the same condition at the expiry or earlier determination of the term. Clause 2(6) provided for a right of entry and inspection in favour of the appellant. This included a proviso that “any action taken by the lessors upon entering the said premises will not result in the lessors serving an interim or final schedule of dilapidations”.
The respondent terminated the new lease in December 2004. In 2005, the appellant acquired its predecessor’s interest in the building and thus became entitled, by assignment, to the benefit of the repairing covenants in the new lease and the right to enforce them against the respondent. It commenced proceedings against the respondent in respect of dilapidations to a value of £416,632, which were specified in a schedule served in April 2005.
In its defence, the respondent claimed that the appellant was precluded from enforcing the repairing covenants in the new lease by a collateral contract and/or a promissory estoppel arising from communications between the parties and their representatives leading up to and concluding with the execution of the new lease. The High Court decided as a preliminary issue that those contentions afforded a defence to the appellant’s claim and dismissed the action: see [2006] EWHC 3363 (Ch); [2007] 19 EG 166. However, the judge had wavered on the issue and gave the appellant permission to appeal.
Held: The appeal was allowed.
Although this case was borderline, the respondent had no defence to the claim based upon collateral contract or estoppel. It was common ground that the defence of promissory estoppel added nothing to the defence of collateral contract and the defence depended upon the documentary evidence and inferences properly drawn from it.
The law relating to collateral contracts had to be applied with caution in connection with sales or leases of land. In a normal conveyancing transaction in a commercial context, with both parties represented by experienced solicitors, it was usual to ensure that all agreed terms were inserted into the contract and conveyance, transfer or lease. Accordingly, anyone who asserted a collateral contract in respect of a term not so included had to show that it was intended to have contractual effect separate from the normal conveyancing documents. It would otherwise be invalidated by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, even if evidence as to its existence was admitted: Heilbut Symons & Co v Buckleton [1913] AC 30 and Brikom Investments Ltd v Carr [1979] 2 EGLR 36; (1979) 251 EG 359 considered.
In the present case, taken as a whole, the correspondence did not show objectively that the parties intended, in January 2002, to make any contract other than that resulting from the grant of the new lease. Depending upon the view taken of the differing reasoning of the Court of Appeal in Brikom Investments, a collateral contract in the form alleged would bind the successors in title on both sides, either by way of estoppel or as a contractual waiver. It would be hard not to conclude that the outcome was not a contract collateral to the lease but a term integral to its grant that was neither contained in the new lease nor in any prior contract that complied with section 2 of the 1989 Act: Inntrepreneur Pub Co v East Crown Ltd [2000] 3 EGLR 31; [2000] 41 EG 209 considered.
Mark Warwick (instructed by Howard Kennedy) appeared for the appellant; Jonathan Ferris (instructed by Michael Conn Goldsobel) appeared for the respondent.
Eileen O’Grady, barrister
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